Year end super boost
Financial year end is often a good time to consider your clients' superannuation contributions. Here the IOOF Tech team have highlighted some useful contribution opportunities - before (and after) 30 June.
Concessional contributions cap
The concessional contribution cap was indexed to $30,000 from 1 July 2014. In addition, eligibility for the transitional concessional contribution cap of $35,000 was extended to clients who were age 49 or older on 1 July 2014.
Review clients who are making salary sacrifice contributions for the 2014/15 year to see if they are able to increase their contributions until year end.
For your clients turning 50 after 1 July 2015, they may be able to increase regular contributions by $5,000 each year to take advantage of the full cap. Likewise, clients making personal tax deductible contributions may be able to increase their contribution amounts.
Tax deductions for contributions
There are also rules and requirements for self-employed clients intending to claim a tax deduction. These include:
- The notice of intent to claim a tax deduction must be submitted to the super fund by the earlier of
1. The date of lodgement of the client's tax return
2. The end of following financial year after the contribution is made
- Written acceptance of the notice must be received from the trustee
- The fund must still hold the contribution
- The client must still be a member of the fund
- The client must not have commenced an income stream
- The client must not have applied for a contribution split.
Non-concessional contributions cap
The non-concessional contribution cap was indexed to $180,000 from 1 July 2014 (up from $150,000). The follow on effect of this is that clients under age 65 at any time in the financial year are eligible to contribute up to $540,000 over three years (up from $450,000).
The Government co-contribution is a straightforward and effective way to increase super savings. This may be a popular strategy for the young adult children of your clients.
Eligible clients who make a personal non-concessional contribution into super before 30 June can receive a Government co-contribution up to a maximum of $500. Employees and self-employed people who earn income1 between $34,488 pa and $49,488 pa may be eligible (increasing to $35,454 and $50,454 respectively in 2015/16). The co-contribution reduces by 3.333 cents per dollar of income over $34,488.
Clients are able to make contributions for their spouse, provided that the receiving spouse is under 65 and has not met a condition of release. There is no eligibility criteria for the contributing spouse. Spouse contributions are counted towards the non-concessional contributions cap of the receiving spouse.
The contributing spouse may be entitled to a tax offset of up to 18 per cent of contributions up to $3,000, the most generous tax concession in super.
The offset is calculated as 18 per cent of the first $3,000 of contributions providing a maximum offset of $540. The offset reduces by $1 for every $1 by which the income1 of the receiving spouse exceeds $10,800, with the offset totally phasing out at $13,800.
Splitting contributions between spouses
Spouses may be able to split up to 85 per cent of concessional contributions received during a year to their spouse. The contributions count towards the contribution cap of the spouse who originally received the contribution.
Although superannuation benefits are tax free for clients over age 60, the strategy can still be useful for the general desire to equalise the financial situation of both spouses. The strategy is also useful for clients who may access benefits before age 60 and as a hedge against future superannuation tax law changes.
Making your clients aware of how they can maximise superannuation contributions and tax effectiveness is an excellent way of increasing contact with your clients.
1. Income includes assessable income plus reportable employer superannuation contributions plus reportable fringe benefits less business related deductions.